Vol 02 02
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Quarterly Journal on Management
From the publishers of THE HINDU BUSINESS LINE

Vol. 2 :: No. 2 :: August 1998


Theme essay

N. Nagaraj

The popular quote ``Good things come in small packages... So does poison'' seems to hold good for small businesses in India. Entrepreneurs venturing out on their own in India suffer a lot for the simple reason that they are small. But why? Why should they suffer because they are small?

One reason is that government and facilitating institutions do not have the right attitude towards small business. Government interest in small businesses runs into extremes. On the one hand, till a few years back, we had a policy of protectionism -- not just small businesses, but other businesses as well -- which went to the length of reserving many sectors of industry for small businesses. Now, we have the policy of economic liberalisation, and many of the once taboo sectors for large businesses have been thrown open to competition. The point is not that protectionism must continue. Just that attitudes vary to that degree.

There is no adequate facilitating infrastructure for small business. Institutions do exist, but they are not entirely supported. Some of the institutions that are shared by big businesses and small businesses mete out the step-motherly treatment to small businesses. Since most facilitating institutions are bureaucracies, the amount of paperwork that is required for any purpose -- whether important or not -- is vast, and in fact, debilitating.

Not all the woes of small businesses can be attributed to institutions. Entrepreneurs need to take a look in the mirror. It's like the pot calling the kettle black. Entrepreneur attitudes towards their own businesses should change. Their expectations from government and institutions need to change. Now that the economy is in an irreversible state of reform, expectations need to be revised to suit the environment. There is no longer any point in persisting with demands that were made in a totally different environment. Successful entrepreneurs are people who continuosly make themselves and their businesses relevant to the environment. Now that the competition is hotting up, entrepreneurs need to make sure that they are gearing up for the markets rather than complain and whine about discounts and subsidies. Time is much better spent on improving quality and performance than in organising summits for a collective howling session.

Given that finance and finance costs are the root of their problems, government and small business support institutions need to do something about making funds available and streamlining procedures, and entrepreneurs again need to be reasonable about the kind of help they can get. From the point of view of institutional effort, we need to have more risk-taking technocrats making decisions on venture capital rather than morbidly risk-averse bureaucrats. But asking for protection from competition or asking for help to fight the competition (which is what subsidies and reservations are) is going a bit too far even for a small business.

Entrepreneurs also need to look at their businesses a trifle differently in terms of possessiveness. Most entrepreneurs refuse to treat their businesses as pure investment. True, a lot of their time and energy has gone into building up the business, but that is no reason why one should not sell the business if a suitable offer is received. Many entrepreneurs in their mid- and late-fifties worry about the succession, and ironically in some cases, their off-spring refuse to get into the business (after a good degree from the US, who needs to slog in a Rs 5 - 10 crore company?). These people refuse to sell their businesses and a thriving organisation goes to the rack.

Many entrepreneurs also refuse to scale their operations up to the next critical level because they feel insecure about their future in terms of finance and in terms of control. This is again something that Indian entrepreneurs need to correct. Hiring professional help has nothing to do with control; It has more to do with common sense and better performance.

Face the fact: Competition is here to stay, and competition is ruthless. It is just the survival of the fittest. In the jungle, there are the prey, and there are the predators. The prey, to survive, needs to be faster than the fastest predators, and the predator, to survive, needs to be faster than the slowest prey. Just put small businesses in place of prey and larger competition in place of the predator, and you get the markets. As evident from the example, many a large company has suffered when the prey are all faster than itself. The fittest survive. That is the fact of life.


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